If as ETF Stream has previously suggested, there is a boom in thematic ETFs then it is a trend which has not gone unnoticed among those hoping to gain a foothold in the European space.
The launch of Rize ETF, a new specialist ETF from the team behind the thematics suite of products at Legal & General Investment Management (LGIM) is a case in point.
Founders Rahul Bhushan, Stuart Forbes, Anthony Martin and Jason Kennard all worked together at ETF Securities and subsequently LGIM.
When at ETF Securities they launched Europe’s first robotics and cybersecurity ETFs and their first product at Rize ETF is rumoured to be in the medical marijuana space.
What the company says:
“There is a growing belief among younger investors that the traditional asset management sector is out of touch and behind the curve,” Bhushan says. “We want to democratise access to emerging and disruptive themes, giving modern-day investors early exposure to the global developments that are most relatable and meaningful for them.”
What the panel says:
Ben Seager-Scott, head of multi-asset at Tilney
It is almost always good to see new entrants entering the market, challenging the status quo, offering investors choice and presenting existing firms with fair competition: this is the capitalist model working well for society on one of its better days.
The core members of the team all worked together at ETF Securities which had a solid and long-standing pedigree in the thematic space from before it was fashionable, so if anyone can make it work, Rize ETF has a good chance.
I have talked before about my reservations around thematic investing, and that has not changed – investors need to remember that you need much more than just identifying a key theme in order to have a successful investment.
Despite this, there is likely to be a lot of demand for thematic investing, particularly from retail investors and the approach to this style of investing is much more sophisticated than it used to be, with much deeper diving into different aspects and applications of a given theme, and the area is much broader.
While once we probably thought of thematic investing in terms of specific types of technology or consumer trends, now the field is much broader and includes themes such as equality, diversity and sustainability. So I wish Rize ETF the very best of luck.
Raymond Backreedy, CIO at Sparrows Capital
We are seeing new entrants into the ETF provider/white-labelling space (Rize adds to the likes of HanETF, MarketBeta and Exchange Traded Concepts) focused on the niche and thematic areas for product development, which makes sense as the traditional areas are well covered by the incumbent behemoths.
I suspect, as evidenced in the US, there is plenty of room for growth in sector, thematic, and ethical-based products that these service providers are catering for.
We are also likely to see the active managers packaging their products into ETFs under the non-transparent ETF structure, operating in the US, should this be adapted over here.
Again these new ETF service provider will be looking at this segment for opportunities to launch products. Whether these thematic or active-packaged ETFs products will be a good thing is another matter.
There is already a tarring-of-the-brush effect between the traditional passive ETFs and the inverse/leveraged ETFs where when the latter blows up, there is a negative blowback onto the traditional safer and useful ETF products.
Expect to see the tarring effect becoming even more prevalent, which is not good for the industry, education and the facts will have to take centre stage to counter this.
Nicolas Rabener, managing director of FactorResearch
Given the ETF price wars, new ETF issuers have to either focus on thematic ETFs or specialty products like Tabula IM.
Fees on plain and smart beta products are so low that these have become uneconomical for even large asset managers.
Launching thematic ETFs involves a large degree of luck as they are only really successful when they capture the Zeitgeist or a particular situation like a global cybersecurity hack.
Fortunately, the team at Rize are experienced and should be able to increase their chances of getting lucky.
Peter Sleep, senior investment manager at 7IM
As a good capitalist, I always welcome a new ETF issuer. It shows that the ETF market remains healthy and innovative and I think it keeps the existing issuers on their toes.
I do not know what Rize ETF is planning to do other than confuse my spell checker. My sole source of information is the ETF Stream article.
According to ETF Stream, Rize ETF is going to focus on niche areas which makes perfect commercial sense unless they have very deep pockets to compete with the established players in the main investment categories. I am less than enthused about the prospect of (the) suggested medical marijuana ETF.
Sam Dickens, portfolio manager at IG Portfolios
A broader universe of thematic ETFs helps to boost the reputation of ETFs as a destination for accessing actively managed investment strategies.
Additionally, thematic ETFs have proven to be more popular amongst our self-directed clients compared to other strategies such as smart beta, since the story behind them is more compelling.
Investors need to be mindful of what the ETF holds – are you getting diversification across specialist companies in the sector or a large exposure in Google, Amazon or other mega-caps that span numerous industries?
It is also important to check the weight of funds’ largest holdings to make sure it does not have a high concentration in a few firms.
On costs, the total expense ratio should be considered but investors should also pay attention to the bid-ask spread of the fund, as some niche ETFs may exhibit wider spreads than vanilla, more liquid ETFs.
Rumi Mahmood, investment analyst at Nutmeg
Rize ETF presents another entry in adding to the diversity of the ETF market.
According to Bloomberg data, thematic ETFs listed in London collectively hold approximately £13bn in assets. Collectively they have seen 12-month net flows of circa £89m marking slow growth. Thematic products are generally more expensive, averaging above 50 bps.
Alongside this, niche underlying indices, which are not conventionally hedgeable or have relatively less liquidity attributes, can make them more expensive on a total cost of ownership basis.
Despite this, there is a case to consider them as satellite positions and they present a way for investors with conviction and risk appetite to express a view on these industries.
Whether or not thematic products present a strong business case is yet to be seen, however, the emergence of megatrends, demographic shifts and niche industries poised for growth is undeniable.
Timo Pfeiffer, chief markets officer at Solactive
Over the past years, the European ETF business witnessed a strong surge in assets under management, and it is forecast to continue its growth trajectory in tandem with the global observable transformation from active to passive investment.
Within this paradigm shift, the passive space holds tremendous expansion capabilities and opportunities in the realms of thematic investing since only selected themes are yet investable via ETFs for European investors.
Rize ETF can use investors’ appetite for theme-driven investments to their benefit, harnessing rising opportunities by offering institution clients passive exposure to themes that previously were not available in ETF format.
The management’s experience in the field is unquestionable, but since more established and uprising ETF providers are on the scent, Rize ETF needs to shine out with bringing innovative themes to the market quicker than the competition.